| June 21, 2005 | Tuesday | Jumadi-ul-Awwal 13, 1426 |
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Frontier finances
The AJK budget
THE PTCL issue now stands finally settled. Postponed from June 10 to 18, the privatization move finally succeeded on Saturday when a UAE firm, Etisalat, acquired 26 per cent of shares with a $2.5 billion offering. The bid is subject to final approval by the cabinet committee on privatization (CCOP), but that is a formality, and for all practical purposes the PTCL is all set to go to its new management. The successful bidding by the UAE company also shows not only the gradual rise in Arab investment in Pakistan but also the diversification of Arab investment. Confined until recently mainly to the oil and financial sectors, Arab investors are moving into the telecom sector. This should serve to spur competition in the sector, which already has quite a few foreign companies operating. For Etisalat this should mean a challenge that must aim at both better service and reduced charges for customers, besides a constant endeavour to keep abreast of technological developments with a view to expansion and modernization.
An equally greater task before the new management will be to ensure that the PTCL’s obligation of providing services in areas that may not return immediate profits is not diluted. This was one of the main points that led to reservations about the privatization. Another was the security aspect of the country’s telecom system, and that too will have to be explained to the public’s satisfaction. The privatization bid was postponed earlier in the month because of worker unrest. Subsequently, we saw many unsavoury developments that included the arrest of union leaders and illegal detention in a manner for which our law enforcement agencies have acquired quite a bit of notoriety. The strike by the workers and the brief occupation of the PTCL headquarters were seen as a provocation by the government. But things would not have come to such a pass if the CCOP had anticipated the workers’ reaction and allayed their fears. The UAE company now has the opportunity to make a break with the past and open a new chapter in relations with the workers. Under the scheme the workers will be offered 2.6 per cent of the shares at a discounted rate. This is a welcome decision and should go towards instilling among the workers a sense of ownership. They would also expect higher wages and other benefits. The PTCL is already a going concern and one of those rare units in the public sector which is making good profit. Privatized and in efficient hands, it should do even better and earn more money. Which means the government should not only get more money in taxes from the PTCL, the benefit of higher profits should also be shared with the workers.
For the government, the PTCL privatization holds a lesson or two. There are strong unions in many other public sector firms which are next in the line of sale. They include such white elephants as Wapda, Pakistan Railways and the Karachi Electric Supply Corporation. The PTCL privatization was on the cards for more than half a decade, but the KESC affair points to how privatization should not be undertaken. If the Saudi company failed to honour its bid and chose to have the earnest money forfeited rather than own the KESC, the government should try to know why a successful bidder backed out. It has to be emphasized — as it has been throughout the debate on privatization — that the state must think carefully about and prepare painstakingly for every step that it takes to withdraw itself from its duty to provide essential services to the people.
THE Rs 2.3-billion deficit NWFP budget for 2005-06 presented to the provincial assembly on Sunday by Finance Minister Sirajul Haq was little to feel good about. With a total outlay of Rs 63 billion, of which 95 per cent is expected to come from grants and subventions from the federal government and loans from international lending agencies, the budget is constrained by the absence of a more equitable NFC award. The Frontier presents a classic case of a small, impoverished province that has remained at the mercy of the centre for meeting its basic financial needs and obligations. The budget is but a prototype of the outgoing year and the ones before it. Even the Rs 20.98 billion earmarked for development programmes have just over Rs 11 billion coming from the province’s own tax receipts, which is the actual cash in hand; the remainder is entirely dependent on additional grants and loans from Islamabad and international agencies. How much of the latter two components will actually materialize is anyone’s guess.
Over 50 per cent of the total budget outlay will be spent on paying salary and pension bills. The province has decided to retire expensive external debts amounting to Rs 3.24 billion during the coming fiscal year. The cost of debt servicing for outstanding loans, and the expected wheat subsidy that the government will have to provide has not been calculated. These will be provided mainly from the possible availability of Rs 5.23 billion that the World Bank is likely to release out of the third tranche of its structural adjustment credit. Despite these problems, the Frontier government must be commended for earmarking over three billion rupees for education and Rs 1.22 billion for health. These are the highest allocations one could expect considering the paucity of resources facing the province. Also, having reworked the provincial financial commission award, Peshawar will provide Rs 1.7 billion directly to the districts, and Rs 10 million each to the MPAs for funding development projects in their respective constituencies. These are the only silver linings in the cloud of resource constraints hanging over the province.
THE Rs 17.848 billion Azad Kashmir budget for 2005-6 presented on Saturday represents an increase of 13 per cent over that for 2004-5. A deficit of Rs 2.765 billion is to be met by assistance from the federal government. Unfortunately, like most other budgets, the biggest chunk of the expenditure proposed for the forthcoming fiscal year — over 70 per cent — will go towards meeting non-development expenditure, mostly salaries of government officials. That this should happen in a region which ranks among the most backward in the country is not encouraging and perhaps the next time around the proportion set aside for development should be substantially higher. However, what is encouraging is that out of the development expenditure, the largest allocation is for building roads and bridges to improve the communication infrastructure — something necessary for the socio-economic development of the mountainous region.
As for financing the budgeted expenditure for 2005-6, less than half will come from the AJK government’s own resources such as local taxes, the rest to be made up from the region’s share in federal taxes, royalties on power from Mangla dam and share of taxes collected in the AJK territories. This is too little and in the coming years, the government will have to work towards reducing its dependence on external sources for financing its budget. One way to do that will be to encourage local industries, such as arts and crafts and tourism — the latter’s immense potential perhaps can now be realized with the guns across the LoC falling silent. The AJK government also remains heavily dependent on foreign aid for most of its development schemes, which include new roads, schools, hospitals, drinking water facilities and improvement in the region’s electricity infrastructure. Known for the profligate ways of some of its senior functionaries, the AJK government needs to lead by example by cutting unnecessary expenditure and by preventing misuse of resources like official vehicles, rest houses, etc.